What can be done as climate change drives up insurance rates?

With environmental disasters becoming more frequent and intense, driving up claims, insurance premiums are, in tandem, inevitably on the rise. In fact, homeowners’ insurance rates rose 21% last year, and experts say climate change is partly to blame.

The recent devastation from Hurricane Helene, Canada’s unprecedented wildfire season, and the looming arrival of Category 5 Hurricane Milton in Florida underscore how climate change is already transforming the insurance landscape. Coverage is not only becoming more expensive but increasingly limited in high-risk areas.

Speaking with Insurance Business, Amar Rahman (pictured above), global head, climate & sustainability solutions at Zurich Resilience Solutions, stressed the need for businesses and communities to focus on sustainability and risk management to keep premiums manageable in the face of escalating natural catastrophes.

“People’s perception of climate change is that it’s going to happen in 20 or 30 years. But these kinds of weather events—like back-to-back hurricanes—are proof that climate change is happening right now,” said Rahman.As NASA reports predict that global temperatures will continue to rise due to human-made greenhouse gases, severe weather damage is expected to intensify in the coming years. Rahman emphasized the importance of not relying solely on insurance as a catch-all solution, but rather viewing it as just one tool in a comprehensive risk management strategy.

“Everything is insurable – it’s about making it affordable. And to do that, you need to take proactive measures,” Rahman emphasized. Businesses cannot depend entirely on insurance to manage risks; they must also implement preventive solutions. “You need to establish resilient systems to minimize the risks you transfer to insurance. It’s akin to fire protection—no-one says, ‘I’m not going to install sprinklers because I have insurance’.”

Tips for brokers to pass on to help clients’ weather-proof homes and businesses include:

• Install smart home devices: Utilize smart home technology for early detection of leaks and fires, such as smoke detectors and water sensors.
• Invest in home improvements: Build with weather-resistant materials (e.g., impact-resistant windows, reinforced roofs) and incorporate landscaping that reduces fire risk (like creating defensible space).
• Purchase flood barriers: Install flood barriers or sump pumps in flood-prone areas to protect against water damage.

Collaboration between corporates and communities

One of the biggest challenges in responding to natural disasters is that recovery doesn’t happen in isolation. Even if a business or home is well-protected, its recovery is still dependent on the resilience of the surrounding community.

Rahman emphasized the importance of collaboration between large corporations and local communities to create sustainable solutions, reduce the risks of climate change, and ultimately keep insurance premiums in check.

“That’s why we’re promoting dialogue between corporates and communities—finding ways we can support both,” said Rahman. “For instance, a production facility could pump excess steam to heat local public spaces like swimming pools, libraries, and retirement homes, cutting costs and reducing the community’s carbon footprint.”

These partnerships create mutual benefits: communities gain essential resources, while businesses bolster their corporate social responsibility by enhancing local resilience. Encouraging sustainable practices allows businesses and residents to minimize exposure to climate-related risks, ultimately affecting insurance costs.

A sustainable community is less dependent on insurance as a short-term fix after natural disasters, tackling the root causes of environmental challenges instead.

“We must acknowledge that what’s happening [with the climate] now isn’t normal. The time for action is now,” Rahman urged.